Inside Gaming: At SLS Las Vegas, things may get worse before they get better

A $35.3 million net loss in the first quarter might be just the beginning.

The SLS will mark its first full year of operation in August, and it’s clear the hotel-casino is having trouble finding its niche in the resurgent Strip market.

The 1,600-room north Strip property, built from the bones of the Rat Pack-era Sahara, is an island, surrounded by empty land and closed developments that offer more promise than customer activity.

SLS Las Vegas’ walk-in business is virtually nonexistent, an aspect that won’t change for years.

A 33-acre festival grounds across the Strip is unused much of the year. Just to the south, an empty lot has been touted by developers as a sports arena site. Most believe the venue is a pipe dream.

The neighboring Riviera Hotel and Casino closed May 4 and the site will be transformed into a convention center. Construction may take two to three years and the Las Vegas Convention and Visitors Authority hasn’t set a date for the Riviera’s demolition.

Across the Strip, Malaysia-based Genting Berhad held a ceremonial groundbreaking for the $4 billion Resorts World Las Vegas on May 5. But construction hasn’t started on the site the company has owned for more than two years.

The biggest impediment to SLS foot traffic is the shuttered Fontainebleau Las Vegas, which has sat unfinished since 2009. Billionaire Carl Icahn bought the property out of bankruptcy and has done nothing other than sell off furnishings, specially made escalators and a construction crane.

The hulking eyesore is like a line of demarcation keeping pedestrians from the SLS. Maybe the convention authority’s demolition crew can toss a few sticks of dynamite over the fence when the Riviera is imploded, saving Icahn the trouble.

Meanwhile, the SLS Las Vegas is bleeding money.

San Francisco-based Stockbridge Capital Partners, which owns 90 percent of SLS Las Vegas, put $5.3 million into the property in April for general operations. In a securities filing, the private equity group said it would — if needed — contribute as much as $40 million into the resort through the end of the year.

SLS Las Vegas President Scott Kreeger remains optimistic.

He was brought into the property in October as a “turnaround” specialist. Kreeger spent the bulk of his gaming career with Station Casinos and was Red Rock Casino, Resort & Spa’s first general manager.

Most recently, he was chief operating officer of the now-closed Revel Casino Hotel in Atlantic City. So he has experience with struggling hotel-casinos.

“Property ramp-ups usually take about a year,” Kreeger said.

But SLS Las Vegas may take much longer.

“Maybe 18 to 24 months,” he said. “There are a lot of things about this property that are great. It just needs some adjustments.”

Kreeger has set out to bolster the hotel room rates and occupancy numbers, adjust the entertainment offerings and drive business to the casino.

SLS Las Vegas opened with some of the Strip’s trendiest restaurants — Cleo, Katsuya, Ku Noodle, Bazaar Meat and Umami Burger. The food offerings brought in $15.7 million in revenue from January to March. Casino revenue during the same quarter was $9.1 million.

Kreeger knows construction of Resorts World and the convention center will bring business north. But until then, he wants to attract locals along with tourists to augment the customer base.

Some believe SLS Las Vegas’ fortunes went south when property visionary Sam Nazarian walked away from the resort in December after acknowledging during his Nevada gaming license hearings that he used cocaine and struggled with alcohol abuse.

Nazarian’s Los Angeles-based SBE Entertainment owns 10 percent of SLS Las Vegas. Nazarian oversaw the hotel-casino’s design and restaurant and amenity choices. Nazarian expressed a profound belief in the Strip’s north end. He made charitable contributions to the neighborhood and was the property’s face and cheerleader.

Gaming regulators gave him a one-year limited license. But he wasn’t allowed to have any say in the property’s operations.

Today, Nazarian’s office is cleaned out. Based on recent events, he has turned his attention to other businesses.

Nazarian took a “sabbatical” from SBE last year to seek treatment. He returned in April and severed ties with a private equity group that planned to invest $500 million into SBE projects.

In May, SBE sold its SLS Beverly Hills hotel for $195 million. A month later, the company parted with the SLS Hotel South Beach in Miami for $125 million.

According to the Los Angeles Times, Nazarian listed his 10,616-square-foot Bel Air estate for $33.5 million on the same day he acquired it for $25 million. Meanwhile he’s trying to sell his 14,464-square-foot Summerlin home for $17.5 million.

Maybe he needs the money.

According to two sources, Nazarian missed a cash call seeking additional funds for the SLS Las Vegas in April. That month, Stockbridge made two “capital contributions” totaling $5.3 million. The missed payment might be detailed by Stockbridge/SBE Investment Co. in its second-quarter financial filing for the Securities and Exchange Commission, expected in August.

We’ll also learn then whether SLS Las Vegas was able to glean business for its restaurants, hotel, and casino from May’s Rock in Rio concert festival that took place over two weekends across the street.

Kreeger said the property had increased customer traffic from its monorail station and benefited from “free advertising” brought about by the resort’s location to festival grounds.

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